Jyske Bank Mortgage Loan Seminar

Jyske Bank mortgage loan seminar

Handelsbanken 28 November 2016 Our targets

Q3 2016

• Delivering an attractive long-term return on equity – Long-term target of delivering an after tax ROE between 8-12% 9.6%

• DKK 100bn in housing-related loans from Jyske Bank branch network and DKK 20bn in DKK 73.9bn mortgage loans for corporate clients and DKK 11.2bn

• Harvesting annual synergies of DKK 600m related to the Jyske Bank/BRFkredit merger >DKK 600m – Full year effect from mid-2016, 18 months ahead of plan

• Maintaining a strong capital position 17.8% and – Long-term targets for capital ratio 17.5% and CET1 ratio 14% 15.9% – S&P rating A- (stable outlook)

2 Capital adjustment in process

• Capital ratio 17.8% and CET1 ratio 15.9% end of Q3 2016 vs. long-term Capital ratio targets of 17.5% and 14% (based on fully implemented CRD IV 20 requirements as per 2020) pct 15

• Gradual capital adjustment towards targets initiated in Q3 2015 10 – Majority of adjustment expected to be completed in the course of 2016-2017 5

• Steps taken: 0 Q4 2015 Q3 2016 Long-term target – Share buyback programme DKK 750m (Nov 2015-Jun 2016) Common Equity Tier 1 Hybrid Tier 1 Tier 2 – Dividend DKK 500m (March 2016) – Tier 2 issue of SEK 1bn (May 2016) Capital distribution – New share buyback programme of DKK 500m initiated on July 1st 1,200 and raised by DKK 500m to DKK 1bn (June and August 2016) DKKm 1,000 – AT1 issue totalling DKK 1.5bn (September 2016) 800 – Intention of proposing ordinary dividend for FY2016 in line with dividend paid in FY2015 (at AGM in March 2017) 600 400

• Adjustment towards the long-term CET1 target of 14% is conditional 200

upon maintaining the current strong S&P RAC ratio in accordance with 0 their capital position ”strong” Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Dividend Buy-back • Defending and securing a stable S&P rating of A- remains a key priority

3 Jyske Bank/BRFkredit merger rationale

Losses and impairment charges 1985 – 2014 (as a % of loans) 3.0 • Firmly establishes Jyske Bank as one of the four major % Mortgage (PIT) financial institutions in Denmark with a full product range 2.5 Banks (PIT)

2.0 • Extensive distribution platforms and customer bases Average losses and 1.5 impairment charges for provide attractive opportunities for organic growth banks 0.92% 1.0

• Increased economies of scale provide opportunities for 0.5 cost efficiencies 0.0 Average losses and impairment charges for MCI 0.19% • Lower earnings volatility from diversified credit portfolio -0.5

and overall risk profile

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

• Strong capitalised combined group supporting existing Domestic lending rating (A-) 2000

1800 DKKbn 1600 • Combined platform positioned to benefit from structural 1400 1200 changes in demand between banking and mortgage lending 1000 800 600 • Well positioned in a changing regulatory environment 400 200 • Positioned to participate further in the on-going 0 consolidation of the Dansih financial sector should Bank lending to households attractive opportunities arise Bank lending to SMEs and corporates Lending to households from mortgage insti. Lending to SMEs and corporates from mortgage institutions

4 Synergies harvested 18 months ahead of plan

• Target for annual earnings and cost synergies of minimum DKK 600m achieved by end of Q2 2016 – Full impact from Q3 2016 and onwards – 18 months earlier than originally planned

• New volume: – Volume of new home loan products DKK 73.9bn of which DKK 72.7bn was booked by end- September

• Capital costs in BRFkredit DKK 24m in Q3 2016 – down from DKK 27m in Q2 2016

• Number of full-time employees reduced to 3,993 by end of Q3 – Target of 4,000 full-time employees achieved – Resulting in cost synergies of more than DKK 300m annually

• Integration costs: – No further integration costs expected – Total integration costs come to approx. DKK 110m (incurred in 2014 and 2015) – Within the announced range of DKK 100-150m – Any additional costs of integrating the banking and mortgage activities will be regarded as operating costs

5 …and growth in home loans and mortgages continues

• Growth in volume: – Volume of new home loan products DKK 73.9bn of which DKK New home loan products 72.7bn was booked by end of Q3. The majority of these are booked 12 80 70 as mortgage loans 10

DKKbn 60 – In Q1-Q3 2016, the Group has experienced an increase in home 8 50 loans granted to new clients 6 40 30 4 • Quality of portfolio: 20 2 – Majority of loans are granted to clients known by Jyske Bank as 10 0 0 volume primarily stems from repatriation of loans previously Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 referred to Totalkredit 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 Home loans granted Home loans accumulated (rhs) – More than 85% in credit rating class 1-5 compared to overall average of approx. 65% for bank loans for the retail segment (Risk and Capital Management 2015) Jyske Bank home loan portfolio by product type 100% – Losses since December 2013 totalling DKK 0.5m 90% 80% – FSA report from early October states that Jyske Bank’s risk 70% appetite in growth areas is lower than average for the banks 60% 50% included in the inspection 40% 30% 20% • Portfolio composition by product type: 10% 0% – Variable rate loans account for 70% of portfolio with F1 loans Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Total accounting for the majority Q4 F1 F3 F5 RL5 RL8 L30 Interest-only – Proportion of loans with interest-only is relatively stable – down the last two quarters – Jyske Renteloft (RL5 and RL8) introduced in Q2 2016 6 Mortgage loans “Homeowners’ bank”

7 In 2014 we wanted to create a new strong mortgage provider based on two strong brands

• Purpose: Create a strong competitor to existing major banks in a market characterized by large economies of scale

• Goal: Two strong mortgage brands based on the groups competencies and systems – Effective processes – New product features – Low funding costs – New digital services

• Vision: “Disrupt” the market through competitive offers in two brands

8 The focus on property lending is a success

Goals Status • Total property lending balance of • Profitable growth in both brands – DKK 300bn – DKK 282bn – DKK 100bn growth – DKK 82bn growth since Q1 2014 since Q1 2014 • Jyske Bank’s new home loans account for DKK • Goals increased DKK 20bn in the 73.9bn in 12 quarters commercial segment – Relatively stable quarterly developments (near capacity limit) – Mostly known customers from Totalkredit – DKK 52bn joint funded in BRFkredit • Funding spreads eliminated/negligible

9 Why are we successful in attracting customers?

Margins on home loans incl. quotation cut1) (LTV 0-80%) • Two attractive brands With Fixed F5 F1 Floater2) instalments • Competitive prices Jyske Bank 0.61 0.79 1.00 0.703) – BRFkredit has always been competitive to attract new customers from competitors BRFkredit 0.61 0.89 1.15 0.82 0.68 0.89 1.41 0.92 – Jyske Bank is ”Best in test” (TÆNK, October 2016) Other – – – – Institutions – Capped Super loan (Cibor3) priced almost as F1 0.74 0.92 1.454) 0.97 • Broadest product range Without Fixed F5 F1 Floater2) – Traditional mortgage products instalments – Joint funding / ”bank” home loans Jyske Bank 0.84 1.07 1.28 0.903) – ”Priority” loans with variable interest rate BRFkredit 0.89 1.12 1.38 1.10 – Top financing 1.00 1.22 1.73 1.25 Other – – – – Institutions • Product differentiation in the two brands 1.06 1.24 1.784) 1.30 – Transparent traditional mortgage products in BRFkredit 1) Quotation cut divided by the funding period is added to the margins. 2) Cibor3M in Jyske Bank and Cita6M for others. For others 7bp is added – Clear and simple new products in Jyske Bank to account for quotation cuts of 0.20 DKK (assuming 3Y funding). The JB margin is calculated as interest minus funding costs in BRFkredit • No funding (bond) side for the customer 3) No longer offered. 4) Some institutions do not offer new F1 loans. Source: Publicly accessible prices from mortgage institutions’ webpages. There has been made no corrections for individual payback programs, customer advantage programs, differences in credit policies and so on

10 Transparency or clarity?

TRANSPARENT COMPREHENSIBLE

 Expedition: 2.000 DKK  Registration Service: 3.000 DKK Up front  Guarantee: 1.000 DKK  Expedition: 6.500 DKK  Brokerage: 0,25%  Quotation cut: 0.10 DKK

 Bond rate: 99.50  Quotation cut (refi.): 0.20 DKK Interest  Interest rate: Cibor + 1.00%  Coupon: Cibor + 0.18%  Margin: 0.7125%

 Market price (bond)  Quotation cut: + 0.15 DKK  Redemption at par (current) Redemption  Brokerage: 0.25%  Redemption fee: 750 DKK  Redemption fee: 750 DKK

11 Bank home loans are like other mortgage loans – just not initially originated by the MCI

• Initially offered in Jyske Bank • Legally transferred to BRFkredit Lån/pantebrevLoan ObligationerBonds • Funded in BRFkredit covered bonds (SDO) • FSA approved joint funding model

Interest Interest • Joint funded loans = other mortgage Rente Rente loans on BRFkredit’s balance sheet RedemptionAfdrag RedemptionAfdrag – Meet all requirements in Danish MCI regulation … Margin ”Bidrag”Marginal – … just as if the loans were originated by CustomerLåntager InvestorInvestor BRFkredit

12 Several benefits on loans without a funding side – both for customers and as issuer

• Competitors build up to Level 1B up • More flexibility is needed to 4-5 times as fast – Funding, documents, agreements, competencies, systems, processes… • Product innovation reduces issue sizes • Longer maturities, foreign currencies • Customers go from fixed to variable and use of derivatives interest rates – but we are restricted – RTL F to handle S&P-requirements without due to FSA diamond moving customers from 1Y ARM (F1) to Cita – Euro covered bonds – Financial instruments for hedging

• 100% hedge and balance (back to back) • We can always refinance traditionally in bonds

1 3 13 Initiatives to eliminate funding spreads is working

• Continued growth • Improving financial performance • Market making agreements S&P OC requirement 12% • Increasing share of Level 1B in new issues – 2Y-10Y ARM refinancing in April (only) 10% • Reducing S&P OC requirement (4.1% today) 8% 6%

2% • RTL spreads are eliminated 0% – BRFkredit in the RTL future starting December 2016 – RTL IT: 0 bp • 30Y almost on par with competitors – Today: 0-1 bps – We also expect to be included in the long future

14 Growth is profitable

18 Fixed costs • Growth drives average costs down due to 16

economies of scale loan 14 per – Operational costs in BRFkredit are to a large extent 12

“fixed” capacity costs costs 10 – Synergies has contributed to 11% lower costs in 8 BRFkredit even though the portfolio has increased 13% lending 6 (YTD compared to 2015) 4 – Capital costs are ROE + OC cost Capital costs

Average Average 2 – Can be calculated in many ways but either way ends up around 30-50 bps 0 3 5 7 9 11 13Portfolio

18 16 100%

• Growth lowers funding costs as the 14 issuances proportion of Level 1 issues has increased 12 – Since January 1st 2014 the proportion of level 1 in 10 open ISINs has increased from 76 to 83% (volume) 8 6 4

2 Proportionof LCR Level 1 0 3 5 7 9 11 13Portfolio

15 When is there a case for higher prices?

The primary considerations:

Margin Quantity Impact (%) (DKK) (DKK) Increase prices (direct earnings effect) + ∆ 150bn ? Reduce price increase to stay competitive . Reputational effects, media etc. − ∆ 150bn ? . Customer reactions . Individual payback and customer advantage programs Lower growth/sales (price elasticity) ? - ∆ ? Product mix change (price substitution effects) ? - ∆ ? Total ?

No clear case for price increases

16 Current discussions on ”LTV > 80 loans”

• The rumour in the press is that politicians discuss opening up for debtors to move loans with LTV higher than the initial LTV limits • Proposal was set forth by BRFkredit when joint funding started • Realkreditrådet repeated this proposal under the recent ”expert comittee” as a way to increase the mobility of debtors • Proposal was rejected(?) • The proposal will open up for a new market of considerable size:

Segment (DKKbn) Retail Commercial Total BRFkredit 24 35 59 Nykredit 215 60 275 RD 89 59 148 Nordea 66 29 95 DLR 1 44 45 Total 395 227 622

17 Digitalization

18 ‘Disruptions’ threatens our current eco system

• English

19 Denmark has a very modern service enabled infrastructure

• Authorities offer – CPR/CVR register (UID) – BBR property register (UID) – Title registry with all debt in Danish properties – IRS interface to personal tax statements – NemID forced on all citizens • The Financial sector has – Electronic clearing & settlement of all fixed income securities (VP) – E-nettet: home sales, current loan information, property geo-data, E- engagement (change of bank service) – Dankort, payment service (Nets), web & mobile banking, Mobile Pay, My Loans • The customers have invested in – WiFi, Blue Tooth, RFID and other technologies – Mobile devices: Smart phones, tablet, watches, GPS etc. etc. – …trust in financial sector services like mobile banks, web banks etc.

20 ‘Disruptions’ are already on their way

• New financial regulation drives • New rating methods are created excess cost for existing banks using social media

• Digitalisation and cost focus drive • Interbank block chains are being fewer physical bank branches build

• Credit ratings are harmonized • Robot advisors and ‘AI’ based tech is available • Independent financial advisors gain markets shares • New IRS home valuations

• Robot based integration tools are • Home sales are too expensive / chosen over rewriting legacy code business models change

• PSD2: Debtors can bring their financial data with them

21 Everything not complex will become available free of charge…

22 Which trends are most important?

• Mobile price comparisons

• Mobile signing

• Geo and RFID tracking

• Big Data

• Excess capacity becomes tradable

• Changes to the labour market

• ‘Trust’ scores drives new business models

• Block chains creates new cheap infrastructure/backbone

23 • English

24 The world according to a mortgage bank

Loan Social Buying media • Everything around the home is taken into consideration

IRS Owning • Focus on selling loans and pre-sale situations

Health Selling Ho • Homeowners correlate with high meHOME income and high end consumption

Spare Spend- time ing • Homeowners is preferred target segment for many vendors

Family Career

Invest- Savings ments

25 Homeowners is an attractive segment

26 Focus on home sales

64,000 homes are traded annually Mortgage market average DKK 275bn annually

Traded homes DKK 120,000120,000 400,000,

350,000, 100,000100,000 300,000, 80,00080,000 250,000, , 60,00060,000 200,000, , 150,000 40,00040,000 , 100,000, 20,00020,000 50,000, , - -

*) 2007 and 2008 are estimated

27 Jyske Bank is the largest ‘disruptor’

• Brand new home loan product range • EURO Covered Bonds

• Brand new sales platform • RTL F Bonds

• Competitive prices • Capped ”Super Loans”

• Products with great clarity • No margin increase

• Joint funding - BRFkredit • New digital services

• Continue to offer 1Y ARM loans (F1)

28 ..

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34 35 Disclaimer

• This presentation and the information contained therein is furnished and has been prepared solely for information purposes by Jyske Bank A/S. It is furnished for your private information with the express understanding, which recipient acknowledges, that it is not an offer, recommendation or solicitation to buy, hold or sell, or a means by which any security may be offered or sold • The information contained and presented in this presentation, other than the information emanating from and relating to Jyske Bank A/S itself, has been obtained by Jyske Bank A/S from sources believed to be reliable. Jyske Bank A/S can not verify such information, however, and because of the possibility of human or mechanical error by our sources, Jyske Bank A/S or others, no representation is made that such information contained herein is accurate in all material respects or complete. Jyske Bank A/S does not accept any liability for the accuracy, up-to-dateness, adequacy, or completeness of any such information and is not responsible for any errors or omissions or the result obtained from the use of such information. The statements contained herein are statements of our non- binding opinion, not statement of fact or recommendations to buy, hold or sell any securities. Changes to assumptions may have a material impact on any performance detailed. Historic information on performance is not indicative of future performance. Jyske Bank A/S may have issued, and may in the future issue, other presentations or information that are inconsistent with, and reach different conclusions from, the information presented herein. Those presentations or the information reflect the different assumptions, views and analytical methods of the analysts who prepared them and Jyske Bank A/S is under no obligation to ensure that such other presentations or information are brought to the attention of any recipient of the information contained herein • Nothing in this presentation constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. This presentation is intended only for and directed to persons sufficiently expert to understand the risks involved, namely market professionals. This publication does not replace personal consultancy. Prior to taking any investment decision you should contact your independent investment adviser, your legal or tax adviser, or any other specialist for further and more up-to– date information on specific investment opportunities and for individual investment advice and in order to confirm that the transaction complies with your objectives and constraints, regarding the appropriateness of investing in any securities or investment strategies discussed herein • Jyske Bank A/S or its affiliates (and their directors, officers or employees) may have effected or may effect transactions for its own account (buy or sell or have a long or short position) in any investment outlined herein or any investment related to such an investment. Jyske Bank A/S or its affiliates may also have investment banking or other commercial relationship with the issuer of any security mentioned herein. Please note that Jyske Bank A/S or an associated enterprise of Jyske Bank A/S may have been a member of a syndicate of banks, which has underwritten the most recent offering of securities of any company mentioned herein in the last five years. Jyske Bank A/S or an associated enterprise may also have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned herein or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment • Any particular security or investment referred to in this presentation may involve a high degree of risk, which may include principal, interest rate, index, currency, credit, political, liquidity, time value, commodity and market risk and is not suitable for all investors. Any securities may experience sudden and large falls in their value causing losses equal to the original investment when that investment is realized. Any transaction entered into is in reliance only upon your judgment as to both financial, suitability and risk criteria. Jyske Bank A/S does not hold itself out to be an advisor in these circumstances, nor does any of its staff have the authority to do so.